Should I Adjust My W-4 Withholdings?

check your withholdings

Whenever your financial or personal situation changes, you need to update your income tax withholding allowances. If you start a new job, get married (or divorced), have a baby, or your household income changes for any reason, the amount you owe for taxes will also change. Forgetting to adjust your income tax withholdings means you could end up owing money to the IRS when you’re not expecting to.

Why are taxes withheld from my paycheck?

Rather than asking individuals to pay all their taxes at one time, the U.S. has a pay-as-you-go tax system. This means that anyone earning income must pay taxes throughout the year. When you start a new job, you fill out a Form W-4 that tells your employer how much of your income should come out of each paycheck for federal income tax.

What is an allowance?

An allowance reduces the amount of money that is held out of your paycheck for income taxes. For example, you are entitled to one allowance for yourself and one for a spouse if you have one. The more allowances you claim, the more money you will take home. Fewer allowances mean less take-home pay.

How many allowances should I take?

When you fill out the Personal Allowances Worksheet on your W-4, you’ll enter a number for each allowance you are eligible to take on Lines A-G.

A – An allowance for yourself
B – Additional allowances depending on your family situation and employment
C – An allowance for your spouse
D – Allowances for your dependents.
E – One allowance if you file as Head of Household.
F – A possible allowance if you claim a deduction for child care expenses on your tax return
G – Allowances if you plan to take the Child Tax Credit on your tax return

Adding the numbers from lines A-G gives you the total allowances you are entitled to claim – but you are not required to take all of them.

If you take all the allowances you qualify for, you will receive a bigger check each pay period. But if you don’t withhold enough from your income during the year, you could owe the IRS at tax time. Withholding too much, on the other hand, means you’ll get a refund from the IRS. In the end, you’ll want to find a balance that suits your financial situation.

How do I fill out my W-4 if I have 2 jobs?

If you have more than one job, you have a choice: you can divide your allowances between two W-4’s OR you can report all your allowances on one W-4. If you do combine all your information on one form, the only allowance you would claim on your additional W-4 is yourself on Line A.

When you have multiple sources of income, you’ll need to report all your earnings on a W-4, so the proper amount of income tax is withheld. If you have a side gig, you are self-employed, or you receive a Form 1099, you can include that additional income on your W-4 as well.

My spouse also works. Who should claim our allowances?

Your spouse can also fill out a W-4 when they start a new job. Since both of you are working, you can combine all of your allowances and income on a single W-4, or you can divide them up. But you can’t claim the same allowances twice, so you’ll need to make sure things like dependents, childcare, child tax credits, and each other are only counted once. If your spouse is claiming all the allowances on their form, you should only claim yourself on Line A of your W-4.

This article is up to date and accounts for tax law changes for tax year 2018 (tax returns filed in 2019). Learn more about tax reform enacted under the Tax Cuts and Jobs Act here.

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